Discuss the incentive problems associated with the secondary

Discuss the incentive problems associated with the secondary mortgage market and at least one proposed solution to these incentive problems.

Solution

The incentive problem associated with thw secondary mortgage market is that secondary mortgage is lent out by retail banks who intervene credit risk involved in it. As the money they lend out is not their own but the depositors money, problem arises when the borrowers fail to pay the loan back because the banks still owe the depositors money. The solution for this incentive problem can be solved with peer to peer lenders. These do not mediate credit risks as they issue borrower payment dependant notes to the borrower when they pay the amount by which they have less stake on loan payment.